THE ECONOMIC GOVERNANCE IN A CONSTITUTION FOR EUROPE: AN INITIAL ASSESSMENT

ABSTRACT Economic Governance in a Constitution for Europe: An Initial Assessment by Roberto Miccú The introduction of the euro gave rise to two problems for the European Union: how to adapt economic policy institutions to the Monetary Union and how to adapt the Union’s economic policy institutions to a totally new structure that calls for a supranational institution, the ECB, to coexist with a system of economic governance entrusted mostly to national governments. This challenge goes hand in hand with the new goal that the Union set at the European Council in Lisbon: making the EU the most advanced knowledge-based economy. However, behind these visible macroeconomic aspects, far-reaching change processes in the economic and social structure are taking place, requiring equally complex governance mechanisms. In fact, there is no doubt that globalisation is generating new problems, which cannot be solved by the traditional economic and social actions taken by national states . In particular, a growing de-coupling has been occurring between production circuits, based on increasingly mobile resources, and citizenship circuits, which are still mostly tied to rights related to a fixed geographic dimension, such as national rights. The result is a basic mismatch between increasingly global market processes and forms of control and democratic governance, as well as of solidarity-based resource redistribution, of a national nature. Concerning Europe in particular, since economic integration processes have historically been necessary to give impetus to the political integration process, there is a strong need to strengthen democratic decision-making circuits capable of shaping an economic governance consistent with community policies . Surely many of the chickens of a Europe that has introduced the single currency, but has left fiscal and economic policies in the hands of the Member States, have come to the Convention home to roost. As an example, reference can be made to the fiscal coordination problem, an issue that for all its importance has so far been neglected, compared with the attention devoted to the single market and currency and which we too shall not dwell on at this time. Coordination should help the Member States to face the growing threat of erosion of their national tax bases. It does not intend to combat competition per se but its harmful and unfair forms . In fact, if redistribution and social protection can no longer occur through political prices, but must be financed by general taxation, what can Member States increasingly engaged in tax competition do? As transaction costs and exchange-rate risks have disappeared, tax differentials will increasingly become a determinant in the allocation of resources, for both enterprises and savers. Tax competition will be fierce, enhancing the need for coordinating the relevant policies. Thus, it would have been necessary for the Constitution to attribute more competences to the Union, to be handled by the Council on the basis of a majority vote, instead of the current paralysing unanimity. However, plans to change this were strongly opposed by the English delegation, thus hindering any significant progress. “Economic governance” is a wide-ranging concept, whose intellectual underpinnings should be dealt with separately, given their multifaceted nature. Besides, there is an awareness that the rules on economic governance cannot be properly interpreted without considering the entire constitutional draft (suffice it to think, for instance, about the provisions on the source system, the allocation of competences between the Member States and the Union and, in turn, among its Institutions, the Charter of Fundamental Rights, the development of a more complete political and participative circuit, as well as the provisions on the so-called “enhanced cooperation” and on the careful attempt to implement decision-making mechanisms moving increasingly away from the still-resistant unanimity principle). By the same token, account has to be taken of the outcomes of the debates on general issues (e.g. the legal nature of a Treaty establishing a Constitution or that of the characters of the new Union) . This initial assessment of the activities of the Convention and their results will discuss only some of these issues, basically in line with the remit and the schedule adopted by the two working groups that focused on the themes: the Working Group on “Economic Governance” and the “Social Europe” Group. The discussion will be centred on a general theoretical profile and on two specific themes. I will focus on the model of social market economy and on selected issues – monetary policy and ECB accountability; the Union’s budget procedures and policies - to try to provide an overview of the positions emerged during the Convention’s debate and to highlight the main issues the Convention is confronted with. Towards the constitutionalisation of the social market economy? Rethinking the model An accurate review of the complex debate on the European economic constitution is unfeasible in this context . However, I will attempt to cast light on the possible implications of the innovations brought to the fore in the European “constituent” debate and the scope of such implications. The main starting point is the constitutionalisation, in Art. 3 of the draft Constitution , of “social market economy” as a concept capable of containing the key features of the economic system. Perhaps it is because the idea lends itself to different interpretations that the Convention added the qualification “highly competitive”. In the Convention’s text, at least in the initial version, where “highly competitive” had not been included yet, the formula seemed to capture the middle ground between economic values and social values, thus modifying the original model propounded by the community Treatises. In order to assess the significance of this expression, it is necessary to adopt a two-pronged approach: on the one hand, a systematic interpretation of the draft constitution is undertaken, to find a meaning consistent with the basic text of the constituent process, and, on the other, the theoretical and historical background of the formula “social market economy” is explored. The inclusion of “social market economy” into Article 3, on the Union's objectives, is the result of proposals by the Working Group on “Social Europe”, XI, and, to a minor extent, by the Group on “Economic Governance”. Both suggested to include this formula into the draft Constitutional Treaty. However, the Group on “Economic Governance” does not advocate the inclusion of this concept in accordance with the same terms and meaning as the those attributed to it by the Group on “Social Europe”. To this end, the proposal outlined in the Group’s final report does call for the inclusion of social and economic objectives in the Constitutional Treaty but these “must be based on the contents of the European Constitutional Treaty” (ECT). Consequently, the “social market economy” model is defined by these precepts. The Group on Social Europe spells out its proposal in different terms. In paragraph II of its report (transposition of the social objectives into the Draft Constitutional Treaty), its “social market economy” appears as a link between economic and social development when it refers to the “European social model” and grants equal, not subordinate, standing to economic and social objectives. Furthermore, the “social market economy” formula overlaps with the “open market economy” contained in Article 4 ECT, that is «open market economy with free competition». As already stated, the final expression in the draft submitted to the Thessaloniki Council is different from that proposed in the Group XI report, in that it adds “highly competitive” to “social market economy”. Such addition seems dictated by the goal to weaken the compromise that, in the proponents' mind, already contained both the social and economic dimensions. The correction introduced by the new provision should be assessed, in particular, in light of the precepts on economic and monetary policies in part III. Basically, these provisions reproduce the current wording of the corresponding parts of the ECT and old Article 4, thus further assimilating the model to the formula “open market economy with free competition”. The debate on the core principles of the European economic constitution seems not to have gone beyond the contents of the current Articles 2, 3 and 4 of the ECT, whose fundamental traits are contained in Article 4 ECT. On the other hand, the statement whereby, as a model for the relations between market and public authority, the “social market economy” is a compromise linked to the welfare State, and a response to the crisis of liberalism, bears scrutiny, though within the limits of this work. The tenets of the Freiburg School have been playing an influential role in the definition of the model since the beginning of European integration. They clearly shaped the rules on competition and the organisation of the common market. This leads inevitably to the evaluation of this School’s proposals in the debate on the link between the legal and political system and the economic order (“ordo”). Monetary policy and the accountability of the ECB Concerning monetary policy and its governance institutions, it is relatively easy to point out the prevailing stances of the Economic Governance Group” which were eventually included in the final Plan drawn up by the Convention. In fact, it was immediately clear that, at least at government level, with the “natural” convergence of that which is the most important among the community institutions involved there was an implicit agreement to regard as untouchable the provisions on monetary policy in the Treaty in force. A review of articles I-29 and from III-77 to III-85 shows that the new constitutional treaty maintains the current structure for the governance of the single currency set out in the Maastricht Treaty . The framework outlined in the Draft Constitution is the same as that in the Maastricht Treaty (and the Protocol on the statute of the European System of Central Banks, which is also referred to in the Draft), also with reference to the constitutional role attributed to monetary institutions, the ECB and the ESCB. However, it should be underlined that while in the Preliminary Draft Constitutional Treaty of October 2002 , the European Central Bank was included in Title IV, together with all the other “Union Institutions” , eventually a decision was made to “remove all references to the European Central Bank” and “place the ECB….as a support body for the Union” . Whilst in the Thessaloniki text the ECB was not defined as a mere “support body for the Union”, it was not included under Chapter I which, under Institutional Framework, includes in article 3 among Union Institutions only the policy-making bodies and the Court of Justice are included. The European Central Bank is placed in the following Chapter, among Other institutions and bodies, together with the Court of Auditors, the Committee of the Regions and the Economic and Social Committee, that is with the two advisory bodies. Perhaps, this choice was determined not so much by the absence of a full assessment of the role of central banks in general and the European Central Bank in particular, but by fears of criticism by those who think that the role of the monetary institutions in the European integration process is being overestimated . Monetary policy since Maastricht has been understood as a form of discipline contributing to define the model of economic Constitution outlined in the Treaties rather than an instrument of economic governance. The objectives of monetary policy (now Article III-77), are clear: based on the current wording of the provision, price stability, also in terms of support to general economic policies, suffers from the strong influence of the basic objective of Article III-69. Clearly, when these provisions make reference to the general context of the model "open market economy with free competition", they reflect the compatibility between public action based on a monetary policy aimed at keeping inflation under control and on the protection of an open and competitive market. The key principles in Article III-69.3 outline a system of economic discipline that introduces the economic constitutionalism model into the power-sharing system between Union and Member States, thus anticipating a mechanism underlying the integration of the States into the European economic Constitution. The objectives of economic policy are then completed by the procedure for the monitoring of excessive budget deficits (III-73) which, despite the criticism levied, is a mere reproduction of Article 104 ECT. This does not necessarily mean ruling out a priori that the inclusion of old provisions in a text qualified as “Constitution” or “Constitutional Treaty” does not have additional implications for rules that might be (and mostly are) the same as the previous ones. First of all, it should be noted that the large number of constitutional provisions on monetary policy and institutions in the European Draft Constitution is an exception among contemporary constitutions: all basic features of monetary governance in the EU have constitutional import . However, the significance of this “choice” is that, at this particular time in history, more than ten years after the Maastricht Treaty, «the objective….to maintain price stability» and the right-duty for monetary institutions to remain independent, at both national and community levels , are deemed as key objectives and requirements and a cornerstone for the firming up and progress of the European integration process. Obviously a large majority in the Convention thought, for instance, that the slightest difference in the definition of independence for the monetary authorities could undermine the foundations of the process toward a political Union. The constitutionalisation of a large number of aspects, related to both the implementation of monetary policy and the institutions responsible for monetary governance, attest to the significant number of checks and balances that came into being around the single currency and the role the euro plays in fostering the political integration process. On the other hand, it should be said that an initial assessment of the Thessaloniki Draft revealed a tendency to underestimate the constitutional import of part III of the Draft - that on the Union’s policies and operations - thinking that only «parts I and II (…) make up the actual European Constitution» (together with part IV), since part III is a «duplication of provisions included in the treaties in force which have been modified and adapted to fit them into the new rules laid down in part I» . One should not be quick to forget, however, that a provision in a text qualified as constitutional does entail legal effects, on one side, and that also part III reflects the condition of the constitutionalisation process, on the other (including, as a matter of fact, to give a constitutional basis to important aspects of Union policies) . In other words, in addition to the provisions on the single currency and its institutions, constitutionalising, for instance, the prohibition to run “excessive budget deficits” , «the basic tasks to be carried out through the European System of Central Banks» , detailed rules on institutional profiles of «monetary governance» , the different position of the Member States which have adopted the euro and of those which have not adopted it , contributes to determine the same characters of the Union at this particular juncture in history. Nor can one play down the meaning of the inclusion in the draft constitution of such provisions as those included in articles 104, 104A and 104C of the Maastricht Treaty, whose content appears to be purely technical . Actually they are a way to reiterate the non-negotiable nature of an oft-repeated constitutional principle of the Union: monetary and economic integration must occur in an «open market economy with free competition».